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Beyond monetary credibility: The impact of globalisation on the output-inflation trade-off in euro-area countries

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  • Marzinotto, Benedicta

Abstract

This paper offers a simple theoretical model and some suggestive empirical evidence on the open economy New Keynesian Phillips Curve (NKPC) based on Blanchard's chain-of-production model (1983). It is here argued that, given a vertical input-output structure of production, the final stage comes with considerable price level inertia because of the high share of predetermined prices or, differently put, in the presence of domestic and international fragmentation in production. Econometric evidence confirms that the (hybrid) open economy specification of the NKPC is a better approximation of inflation dynamics in the euro-area than the closed economy specification and that globalisation has increased price stickiness, thereby producing a flattening of the Phillips Curve.

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  • Marzinotto, Benedicta, 2009. "Beyond monetary credibility: The impact of globalisation on the output-inflation trade-off in euro-area countries," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 162-176, August.
    • Handle: RePEc:eee:ecofin:v:20:y:2009:i:2:p:162-176
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    2. Zhang, Chengsi & Zhou, You, 2016. "The Global Slack Hypothesis: New Evidence from China," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 339-348.
    3. Chengsi Zhang & Xingchen Ji & Wensheng Dai, 2017. "Global Output Gap and Domestic Inflation in China," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(1), pages 17-30, December.

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